Monetary Announcement Premium in China
80 Pages Posted: 8 Feb 2018 Last revised: 7 Nov 2018
Date Written: November 4, 2018
This paper documents a pre-announcement premium of Chinese equity market anticipating its central bank PBOC's monthly data release announcement of monetary aggregates. This premium more than doubles the size of total equity premium in China. We then present a model characterizing investors' information acquisition decision. When investors with limited attention find optimal to learn about monetary data prior to announcement, attentive learning drives down the forecast uncertainty and boosts up equity prices. We stress the unique importance to study China. Exploiting the randomness in PBOC's announcement timing, this paper provides the identification of the causal link rationalized in Ai and Bansal (2018) by which the reduction of uncertainty accounts for the U.S. FOMC announcement premium. Chinese evidence suggests that delayed release of monetary data triggers pre-announcement attentive learning which decreases forecast uncertainty and generates pre-drift of equity returns. We find the intensity of learning as proxied by traffics to PBOC's website has increased before announcement. Cross-sectionally, stock prices of small firms and large growth firms are particularly sensitive to incoming monetary announcement.
Keywords: Equity Premium, Monetary Policy, Announcement, Macro Finance
JEL Classification: E44, E52, G12, G14
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